Oil slid back below $69 a barrel this morning, reversing a 2.6 per cent gain the day before, after data showed a surge in US petrol stocks, signalling weaker-than-expected demand from the world's top energy user.
The market awaits confirmation of the American Petroleum Institute's (API) bearish figures with the release of the US Energy Information Administration's (EIA) own data later.
US economic figures due later will shed more light on the health of the US economy. May durable goods orders and new home sales figures could show the recession might be near a bottom, but a firm rebound is likely to be slow to emerge.
By 4.29am, US crude for August delivery was down 77 cents at $68.47, off a morning low of $68.06, after settling at $69.24 yesterday. London Brent crude fell 84 cents to $67.96.
"We're seeing potentially the third week in a row of increased gasoline stocks, which is a cautious sign, and would indicate that demand conditions are not that strong, and the US driving season is not panning out as expected," said Mark Pervan, senior commodity strategist with ANZ Bank.
"Prices have run up very strongly, so there's a natural pullback. Fundamentally, the market may be swinging towards focusing more on negative data which it has ignored in the last few weeks, and the API data could be the trigger," he added.
Pervan expects crude to trade between $62 and $69 a barrel over the next week.
Oil prices have more than doubled since last winter's low $30s as investors have started to price in expectations for an economic recovery which should boost consumption.
API data yesterday showed US crude stocks fell 72,000 barrels last week, far less than expectations of a 1-million-barrel decline in a Reuters poll.
Petrol stocks surged 3.7 million barrels against expectations of a 1.3-million-barrel increase, as refiners raised utilisation rates and product imports rose.
Reuters